Tax planning has to be a crucial part of everyone’s finances. Planning your taxes in advance helps you sort things in a better manner and prove to be of great help while you file ITR in the relevant assessment year. It ensures you have allowed enough time for yourself to factor your gains and income before filing your income tax returns.
The month of October marks Dussehra in India. It signifies the triumph of good over evil. The demons were slain in different regions and people were protected against destruction during these ten days. Celebrate this Navratri by slaying the tax demons for the FY 2020-21, and live the remainder of the year stress-free.
Here are 5 reasons to slay the tax demons in October:
1) Lead the remainder of the FY stress-free
On planning your taxes in October, you don’t have to worry about your taxes for the rest of the financial year. If you estimate your taxes now, you can plan and invest accordingly. You have to start looking at the various sections of the Income Tax Act to understand if you are eligible to claim an exemption or deduction under them.
2) Get umpteen time to pick the best option
If you start to plan on tax saving now, you can have a look at the various available tax-saving investments. You have to analyse and compare the options before choosing to invest in any. You should invest in that option which is in line with your objectives and risk profile. For instance, if you are risk-averse and have a long-term investment horizon, then you may consider provident funds (PPF and EPF) and NPS.
If you are not willing to take any risk and have an investment horizon of less than six years, then you may consider investing in NSC and tax-saver FDs. If you are ready to take some risk in exchange for the potential to earn inflation-beating returns, you may consider investing in ELSS mutual funds.
3) Your HR will not have to deduct a high TDS in the last quarter of the FY
Most employers will ask their employees to submit tax-saving investment proof (if any) by the last week of January. If you have not invested enough to save taxes by then, they deduct a high TDS, resulting in lower take-home salary in the last few months of the financial year. Therefore, by making sufficient tax-saving investments now, you can avoid the situation where your employer deducts a high TDS.
4) No need to arrange for a lump sum in January/February
If you have not made enough tax-saving investments by the end of the financial year, then you may have to arrange for a lump sum to invest in order to reduce your taxable income. If you are to maximise your tax-savings under the Section 80C provisions, then you need to invest Rs 1,50,000 in any of the available options.
This will help you save up to Rs 46,800 a year in taxes, depending on your income tax slab. If you have not made enough tax-saving investments by the time your HR asks for investment proof, then you may have to arrange for a sum up to Rs 1,50,000 to claim the optimum deduction by investing in tax-saving instruments, and avoid a high TDS deduction. Arranging for such a big sum within a few days may become troublesome.
5) Avoid transactional glitches
If you are planning your taxes at the last minute, there are so many things that can go wrong. More than anything, you may not be able to select the best investment option. Adding to that is the possibility of a transactional glitch.
If by any chance your investment does not go through, then you may not be able to claim the deduction you were planning to. Hence, it would be best if you got your taxes sorted much earlier during the financial year to be on the safer side. If you have not planned your taxes already, then now is the time!
Smart taxpayers are those that plan their taxes in advance. Last-minute tax-planning is not advisable to anyone. If you are struggling to plan your taxes effectively, then you may seek help from a professional financial planner.
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Engineer by qualification, financial writer by choice. I am always open to learning new things.